Minimum payment trap Credit card issuers let you pay only a fraction of your total bill, the minimum payment, to default. While this keeps your account up to date and spares you late payment fees in the short run, it is an illusory feeling of affordability. The outstanding balance is carried forward and begins earning interest, commonly at extremely high rates. As time passes, your monthly payments decrease the amount due only incrementally, making you debt-ridden for years.
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Interest piles up quickly If you just pay the minimum, the remainder of your balance doesn't disappear—it gets carried over with exorbitant interest charges. In India, credit card interest rates range from 30% to 42% per year. As an example, if you have ₹50,000 outstanding and pay the minimum amount monthly, that amount will double in a couple of months less than two years. Compounding makes it harder to pay monthly.
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Your credit score could be harmed minimum payments will also damage your credit score. This is because your credit utilization ratio—the amount you're using of your available credit—is still high. The percentage of utilization is excessive, showing lenders that you're in financial distress, even if you've never missed a payment. Over time, this can devalue your credit, making it harder to qualify for new loans or credit cards. Even if you do get approved, you may have to pay higher interest rates.
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Fees can exacerbate the burden Minimum payments will keep you out of short-term default, but they won't protect you from fees. If you do happen to miss a minimum payment, you can be charged hefty late payment fees, over-limit fees, and penalty rates of interest. All of these extra charges can rapidly add up, especially when you have an outstanding balance. A combination of ongoing fees and rolling interest can significantly inflate your cost and have you with less to repay by the due date.
Minimum payments postpone financial objectives Responsible use of credit cards will keep your credit history positive, but making minimum payments often deviates funds from your long-term goals. Instead of spending money on emergencies, investing in mutual funds, or buying a home, your funds are spent paying interest and maintaining debt. This glides wealth creation into slow gear, strips away your financial freedom, and makes you work harder for the same financial objectives, reducing long-term peace of mind.
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Paying in full is the safest practice The best use of credit cards is to always pay the whole bill on time. This will prevent interest, have a good credit rating, and have credit cards as a convenience, not an annoyance. When paying the entire bill appears to be out of the question for some months, attempt to pay as much above the minimum payment as possible. It reduces the amount left, reduces future payments of interest, and takes back control of your finances.
